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What is Takaful?

The word takaful comes from the Arabic language meaning "guaranteeing each other". Takaful therefore is the practice whereby individuals in the community jointly guarantee themselves against loss or damage. It was first established in the early second century of the Islamic era with the purpose of promoting mutual solidarity and co-operation among the Muslim community. As mentioned in the Qur'an:

"And help one another in righteousness and piety and do not help one another in evil deeds and enmity" (Al Maidah verse 2)

The main characteristic of Takaful is al-Musharakah which means sharing. Thus, the word Takaful means shared responsibility, shared-guarantee, collective assurance and mutual undertakings.

Islamic insurance embraces the concepts of mutual protection and shared responsibility which was seen in the practice of paying blood money (diyah) under the Arab tribal custom. This was accepted into Islamic practice on the verdict of the Prophet (peace be upon him). It therefore potrays the sincerity and willingness of the group to help and assist anyone among them in times of need. "Takaful" bears many similarities to co-operative or mutual insurance.

In takaful there are no policyholders; there are contributors who participate jointly in a fund for their mutual benefit. They are owners of the fund and the takaful company manages the fund on their behalf. Thus, if the company makes a profit this is shared between the contributors, and if any of the contributors were to suffer financial loss they are paid from the takaful fund.

Differences between Takaful and Conventional Insurance?

Takaful differs from conventionally understood insurance cover. In the latter, the insured person sells his risk at a price to a counter-party, thus including an element of "gharar" (uncertainty) in the contract. Under Shari'ah, a contract of uncertainty exists when the counter-parties do not know the nature of the countervalue that they are trading. A house may burn down, costing the insurer a large sum of money, or it may not burn down in which case the insured person has paid a premium and received nothing in return.

However, the act of taking measures against possible dangers or consequences does not go against the teachings of Islam. As described in the Qur'an, Prophet Yusuf (Alaihis Salaam) 'filled the grain silos from the surplus of seven years of good harvest as a protection to ensure the availability of continuous food during the seven lean years.

The guiding principle behind commercial insurance is that it is based largely on commercial factors. Takaful on the other hand is guided by the principles of Islam, which aims to establish a social order based on universal brotherhood. In Islam

'A Muslim is the brother of another Muslim; he neither wrongs him, nor leaves him without help, nor humiliates him'


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